Boost for markets: Tax exempt scheme for retail investors

In order to increase retail participation in the capital market, finance minister Pranab Mukherjee has proposed a tax exemption scheme for new investors in the budget.

The Rajiv Gandhi Equity Savings Scheme will allow 50% tax deduction for those whose annual income is below R10 lakh and who invest up to Rs 50,000 in stocks.

“The scheme would allow for income tax deduction of 50% for new retail investors, who invest up to Rs 50,000 directly in equities,” said Mukherjee in his budget speech. “The scheme will have a lock-in period of 3 years.”

Market participants believe that the scheme will bring in new set of investors in the market.

“In the current situation when investor sentiments are weak, the scheme will attract fresh flow of funds in the market,” said Anand Rathi, founder and chairman, Anand Rathi Financial Services. “It will inculcate the habit of long-term investing in investors.”

In order to simplify the process of issuing initial public offerings (IPOs) and lowering the cost, the finance minister has also proposed to make it mandatory for companies to issue IPOs of Rs 10 crore and above in electronic form through nationwide broker network of stock exchanges.

“The introduction of electronic platform for the IPO subscription process will help firms reach more retail investors in small towns,” said Motilal Oswal, CMD, Motilal Oswal Financial Services.